OBLIGATIONS AND CONTRACTS REVIEW QUESTIONS

Atty. Nina Rances SY 2017-2018

1. Q: Differentiate Resulting Trust from a Constructive Trust?

A: This is under Art. 1441. See table below.

RESULTING TRUST CONSTRUCTIVE TRUST

• arises where a person makes or causes to
be made a disposition of property under
circumstances which raise an inference
that he does NOT intend the person
taking or holding the property should
have the beneficial interest in the
property
• doctrine of resulting trust is founded on
the presumed intention of the parties
• imposed where a person holding title to
property is subject to an EQUITABLE
DUTY to convey it to another on the
ground that he would be UNJUSTLY
enriched if he were entitled to retain it
• duty to convey the property arises
because it was acquired through fraud,
duress, undue influence or mistake,
or through breach of a fiduciary duty,
or through the wrongful disposition
of another’s property

2. Q: In what instances may there not be a reformation of an instrument even though the requisites for
reformation are present?

A: Art. 1366

There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;

(2) Wills;
(3) When the real agreement is void.
Art. 1367
When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask
for its reformation.

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 3. Q: What is the test to determine whether a promise is within the Statute of Frauds?

A: This is under Art. 1403 – the Test of Guaranty. The question to ask is whether the promise is an
ORIGINAL or a COLLATERAL one. If it is original/independent, the promisor is primarily liable
and therefore it is NOT within the Statute of Frauds. If it is merely collateral to the agreement of
another, the promisor is merely a surety and thus, it must be in writing.

4. Q: What are the rules in the interpretation of contracts?

A: Art. 1370-1379

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former.

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.

Article 1372. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree.

Article 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.

Article 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

Article 1375. Words which may have different significations shall be understood in that which is most
in keeping with the nature and object of the contract.

Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission
of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void.

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 Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise
be observed in the construction of contracts.

5. Q: What contracts are void or inexistent from the very beginning?

A: Art. 1409

• Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy.
• Those which are absolutely simulated or fictitious.
• Those whose cause or object did not exist at the time of the transaction.
• Those whose object is outside the commerce of men.
• Those which contemplate an impossible service.
• Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained.
• Those expressly prohibited or declared void by law.

6. Q: Enumerate the badges of fraud. What is the effect of the presence of a badge of Fraud?

A: This is under Art. 1387. Badges of Fraud:

• The fact that the consideration of the conveyance is inadequate.

• A transfer made by a debtor after suit has been begun and while it is pending against him.
• A sale upon credit by an insolvent debtor.
• Evidence of large indebtedness or complete insolvency.
• The transfer of all or nearly all of his property by a debtor, especially when he is insolvent
or greatly embarrassed financially.
• The fact that the transfer is made between a father and a son, where there are present any
of the above circumstances.
• The failure of vendee to take exclusive possession of all the property.

Nota bene: I’m not sure what the answer is to the second question. This is my guess:

The existence of fraud, whether presumed or proved, does not necessarily make the alienation
rescissible. Fraud is only one of the requisites for the accion pauliana. If the transferee acquired the thing
in good faith and for valuable consideration even if the debtor who made the alienation act
fraudulently, rescission will not be allowed.

7. Q: What contracts are voidable or annullable? What is the effect of the plaintiff’s failure to prove
damages in an action to annul a contract?

A: Art. 1390
• Those where one of the parties is incapable of giving consent to a contract

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 • Those where the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud
Nota bene: I’m not sure what the answer is to the second question. But this is the only
part I saw about damages under annulment:
The general rule is that the annulment of the contract and the resulting mutual restitution
eliminates the possibility of damage suffered by the injured party. However, there are cases where
losses occasioned by the contract cannot be erased or compensated by its annulment. In such cases,
the injured party should be entitled to recover also indemnity for damages.

8. Q: What are the characteristics of Trust?

A: Under Title V.

• It is a relationship.
o Trustor
o Trustee
o Beneficiary
• It is a relationship of fiduciary character.
• It is a relationship with respect to property, not merely involving personal duties.
• It involves the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another.
• It arises as a result of a manifestation of intention to create the relationship.

9. Q: What are the requisites for a valid object of contracts?

A: Art. 1347, 1348 and 1349

• The object must be within the commerce of man

• It must be licit, or not contrary to law, morals, good customs, public policy or public order
• It must be possible
• It must be determinate as to its kind

10. Q: Who may institute an action for annulment of contracts?

A: Art. 1397

The action for the annulment of contracts may be instituted by all who are thereby obliged principally
or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom
they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed
fraud, or caused mistake base their action upon these flaws of the contract.

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 11. Q: What contracts are rescissible?

A: Art. 1381

• Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
• Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
• Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
• Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
• All other contracts specially declared by law to be subject to rescission.

12. Q: Differentiate VOID from VOIDABLE contracts.

A: See table below.

VOIDABLE VOID
• Valid until set aside • No contract, no effect!
• Can be set up only against a party • Can be set up by anyone who asserts a
thereto; can never be assailed by a third right arising from it; against all his
person successors not protected by law
• May be ratified • Cannot be ratified
• Prescribes • Does not prescribe

13. Q: Distinguish dolo causante from dolo incidente.

A: See table below.

DOLO CAUSANTE DOLO INCIDENTE

• determines or is the essential cause of • does not have such a decisive influence
the consent and by itself cannot cause the giving of
consent
• ground for annulment • not a ground for annulment, only
damages

14. Q: In what instances where only one of the parties is mistaken may said party ask for the
reformation of the instrument?

A: Art. 1362

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 If one party was mistaken and the other acted fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former may ask for the reformation of the
instrument.

Art. 1363

When one party was mistaken and the other knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former, the instrument may be reformed.

15. Q: What is lesion and when can it give rise to rescission?

A: Under Art. 1381.

Lesion is the injury which one of the parties suffers by virtue of a contract which is
disadvantageous for him. To give rise to rescission, the lesion must be known or could have been
known at the time of the making of the contract, and NOT due to circumstances subsequent thereto
or unknown to the parties.

Art. 1381 paragraphs 1 and 2 provide when lesion may give rise to rescission:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;

16. Q: What are the elements of Estoppel in pais? In relation to the party sought to be estopped and
in relation to the party claiming estoppel.

A: Under Art. 1433.

In relation to the party sought to be estopped:

• Conduct amounting to false representation or concealment of material facts, or at least

calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert.
• Intent, or at least expectation that this conduct shall be acted upon by, or at least influence,
the other party.
• Knowledge, actual or constructive, of the real facts.
As related to the party claiming the estoppel:

• Lack of knowledge or of the means of knowledge of the truth as to the facts in question.
• Reliance, in good faith, upon the conduct or statements of the party to be estopped.
• Action or inaction based thereon of such character as to change the position or status of the
party claiming the estoppel, to his injury, detriment or prejudice.

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 17. Q: What contracts are outside the scope of the Statute of Frauds?

A: Under Art. 1403.

SOF not applicable to contracts which are either totally or partially performed, on the theory
that there is a wide field for the commission of frauds in executory contracts which can only be
prevented by requiring them to be in writing, a fact which is reduced to a minimum in executed
contracts because the intention of the parties becomes apparent by their execution, and
execution concludes, in most cases, the rights of parties.

18. Q: What are the three kinds of estoppel? Differentiate.

A: Under Art. 1433.

The three kinds of estoppel are Estoppel by Record, Estoppel by Deed and Estoppel in
pais. See table below for comparison.

Estoppel by Record Estoppel by Deed Estoppel in pais

The preclusion to deny the
truth of matters set forth in a
record, whether judicial or
legislative, and also to deny the
facts adjudicated by a court
of competent jurisdiction.
A bar which precludes one
party to a deed and his privies
from asserting as against the
other party and his privies any
RIGHTS or TITLE in
derogation of the deed, or
from denying the truth of any
material facts asserted in it.
A term applied to a situation
where, because of something
which he has done or
omitted to do, a party is denied
the right to prove or plead an
otherwise important fact.
“Equitable estoppel”,
generally used interchangeably
as applicable to all estoppels
which are not by record or by
deed.

19. Q: What contracts must appear in a public instrument?

A: Art. 1358

The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein are governed by articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;

(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third person;

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 (4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
articles, 1403, No. 2 and 1405. (1280a)

20. Q: Distinguish estoppel from waiver and ratification.

A: Under Art. 1431. See tables below.

ESTOPPEL WAIVER
• may arise even when there is no • a voluntary and intentional
intention on the part of the person abandonment or relinquishment of a
estopped to relinquish any existing right known right
• frequently carries the implication of • no implication of fraud
fraud
• involves conduct of both parties • involves act/conduct of only one of the
parties

ESTOPPEL
• he is bound notwithstanding the fact
that there was no such intention, because
the other party will be prejudiced and
defrauded by his conduct unless the law
treats him as legally bound
RATIFICATION
• the party is bound because he intended
to be (he gave his consent by virtue of
the ratification)

21. Q: What are innominate contracts? What are the 4 classes?

A: Innominate contracts are those without any particular name. The 4 classes are:
• Do ut des – I give you give
• Do ut facias – I give and you do
• Facio ut facias – I do and you do
• Facio ut des – I do and you give

22. Q: What are the requisites that must concur in order that an action for rescission of a contract may
prosper?

A: Requisites:
• The contract must be a rescissible contract, such as those mentioned in Articles 1381 and
1382.
• The party asking for rescission must have no other legal means to obtain reparation for the
damages suffered by him. (Art. 1383)
• The person demanding rescission must be able to return whatever he may be obliged to
restore if rescission is granted. (Art. 1385)

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 • The things which are the object of the contract must NOT have passed legally to the
possession of a third person acting in good faith. (Art. 1385)
• The action for rescission must be brought within the prescriptive period of FOUR YEARS.
(Art. 1389)

23. Q: Differentiate natural obligations from moral obligations.

A: Under Art. 1423. See table below.

NATURAL OBLIGATIONS MORAL OBLIGATIONS

• there is a juridical tie
• performance is a legal fulfillment
• in the domain of law, being a true
obligation with a legal tie
• consequence of juridical tie
produces certain civil effects
• no juridical tie
• act is of pure liberality (may be
because of blood, affection,
benevolence)
• entirely within the domain of
morals, moral duty is inexistent
from juridical point of view

24. Q: What is laches? What are its elements? How does it differ from prescription?

A: Under Art. 1431.

Laches is the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by exercising due diligence, could or should have been done earlier; it is negligence
or omission to assert a right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned or declined to assert it.

Elements of Laches:
• Conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation complained of
• Delay in asserting complainant’s rights after he had knowledge of the defendant’s conduct
and after he has had an opportunity to sue
• Lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit
• Injury or Prejudice to the defendant in the event relief is accorded to complainant
LACHES PRESCRIPTION
• concerned with the effect of delay • concerned with the fact of delay
• principally a question of inequity of • a matter of time
permitting a claim to be enforced • statutory
• applies to equity • applies at law
• based on a fixed time

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 25. Q: What contracts are unenforceable?

A: Art. 1403

The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making
thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or
the evidences, or some of them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

26. Q: When may a party ask for the reformation of an instrument?

A: Art. 1359

When, there having been a meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to
the end that such true intention may be expressed.

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 If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties,
the proper remedy is not reformation of the instrument but annulment of the contract.

Requisites:
• There must have been a meeting of the minds upon the contract
• The instrument or document evidencing the contract does not express the true agreement
between the parties
• The failure of the instrument to express the agreement must be due to mistake, fraud,
inequitable conduct or accident

27. Q: Differentiate express trust from implied trust.

A: Art. 1441.

Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the
parties. Implied trusts come into being by operation of law.

EXPRESS TRUSTS IMPLIED TRUSTS

• can come into existence only by the
manifestation of an intention to create
it by the one having legal and equitable
dominion over the property made
subject to it; such intention may be
manifested by words or conduct
• either resulting or constructive
• through implication of an intention to
create a trust as a matter of law or
through the imposition of the trust
irrespective of, and even contrary to any
such intention

28. Q: Distinguish the effects of absolute simulation and relative simulation.

A: Art. 1346

An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice
a third person and is not intended for any purpose contrary to law, morals, good customs, public order
or public policy binds the parties to their real agreement.

ABSOLUTE SIMULATION RELATIVE SIMULATION

• nullity of the contract is based on the
want of true consent; there is no intent
to be bound
• the contract does not legally exist; it is
illusory
• it is generally fraudulent and for the
purpose of injuring third persons
• VOID
• validity is based on the freedom of
contract
• the intention of the parties is upheld,
whatever form or terminology they may
use in their contract
• if concealed contract is lawful, it is
absolutely enforceable, provided it has
all the essential requisites; valid and
binding if it does not prejudice a third
person and is not intended for any
purpose contrary to law, morals, good
customs, public order or public policy

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 29. Q: What is the rescissory action to set aside contracts in fraud of creditors? What are its requisites?

A: Art. 1381 (3)

The following contracts are rescissible:

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;

“Accion Pauliana”

Requisites:
• That the plaintiff asking for rescission has a credit prior to the alienation although
demandable later
• That the debtor has made a subsequent contract conveying patrimonial benefit to a third
person
• That the creditor has no other legal remedy to satisfy his claim, but would benefit by the
rescission of the conveyance to the third person
• That the act being impugned is fraudulent
• That the third person who received the property conveyed, if it is by onerous title, has been
an accomplice in the fraud

30. Q: When does an action for rescission prescribe? When is the prescriptive period reckoned from?

A: Art. 1389

The action to claim rescission must be commenced within four years.

For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former's incapacity, or until the domicile of the latter is known.

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